Making the World a Better Place by Providing New Opportunities in Emerging Markets
Making the World a Better Place by Providing New Opportunities in Emerging Markets by Garret Weigel
Emerging markets can be defined as economies that are becoming more engaged with global markets. This increased engagement includes local institutions taking on government debt to finance operations, development of their financial institutions, but most importantly more foreign trade and investment. They typically have similar characteristics with developed economies, including foreign investment. These markets offer a greater return potential, but they also invite greater risk due to currency fluctuations, lack of normal distributions found in established markets, and looser trading restrictions. This opportunity is attractive for investors but can also be a deterrent for many due to its volatility. Because of this, few companies have created software to manage investments in emerging markets.
DLM Finance, an organization focused on specialized portfolio management and treasury services for fund managers, recognized the opportunity these markets possess. Using low-code, they built Trade Manager, their treasury management system (TMS) that helps to solve the challenges associated with investing in emerging markets.
FinTech’s Sour Relationship with Emerging Markets
Because of the uncertainty of investing in emerging markets, long-term planning is challenging. This invites more risk than in traditional markets and makes accurate forecasting far more difficult. This is also a small sector compared to the complete finance spectrum. There is a lack of standard TMS software built by the network of FinTech providers that DLM Finance has worked with who would provide necessary market data for investing. Additionally, FinTech does not usually build TMS software for emerging markets because developing markets are not ‘deep enough.’
Smaller organizations that need solutions for these investment opportunities typically do not have enough capital to invest in custom software development. In the rare cases where they do have the capital, they lack expertise in knowing exactly what their solution should provide, further complicating their ability to invest. The lack of available TMS software prevents DLM Finance’s prospects of potentially lucrative opportunities. Emerging markets not only offer great return potential, but they would also benefit from foreign investment which would help provide wealth to fuel its growth.
EMIR Forces DLM Finance’s Hand
The European Market Infrastructure Regulations (EMIR) was introduced in 2012, in part as a response to the 2007-2008 financial crisis. EMIR is meant to reduce systemic counterparty and operational risk, helping to prevent future financial system collapses. Frank Nijssen, Head of Business Development at DLM Finance, explains that once this regulation was introduced every financial institution “had a reporting obligation, but basically nobody knew how to fulfill it.”
The regulation was so new to the market that there were no solutions in place to solve these new reporting obligations, especially in emerging markets where TMS software providers are lacking. Financial institutions that are obligated to report based on EMIR needed a solution that managed back and mid-office activities, such as deal administration, preparing payments, risk management, and accounting. Before this ruling, DLM Finance had employed a software provider to help manage their development process for their previous solution. Nijssen and his team spoke with both their IT provider at the time, as well as prospective software organizations about building a solution that would fulfill this new reporting obligation, but they were met with disinterest or unreasonable timelines.
Bringing TMS Software to Market Quickly
DLM Finance recognized the need to quickly develop a solution that enables its clients to meet the new regulations. No solution existed in the broader global financial market that could respond to the regulation, given that it had just been signed into law. Their expertise is what separates DLM Finance from their competitors – they enhance their customers’ processes to implement best market practices when investing in emerging markets. Nijssen, for example, has worked in various financial functions. From treasury and risk investment management to CFO, he has built invaluable experience across finance. Despite their collective experience, the DLM Finance team could not build a solution that would meet the rigorous reporting standards that the new regulation required.
The DLM Finance team realized that they needed to create a custom-built solution without the development burden that a project of this scale would demand. DLM Finance connected with Mendix to create a proof of concept for a TMS that could fulfill EMIR. After a successful build-out with the Mendix team, they collaborated with Finaps, a Mendix partner since 2010, to complete the first version of Trade Manager in just two months.
The One Size Fits All Multi-Tenant Application
Having adopted Mendix as their development platform, the DLM Finance team can iterate on Trade Manager without the need for deep technical experience. Nijssen explains that “bridging the gaps from finance to actual code is working well.” Using low-code, DLM Finance can leverage their experience in finance and translate that to the TMS software, providing best in class solutions to their clients. By leveraging model-driven development, Nijssen and his team can abstract the processes within their application. This makes in-process development simpler and provides faster iteration cycles leading to more frequent and richer feedback. Collaboration is improved, and the development process is made more accessible to their clients.
Each one of DLM Finance’s customers is unique, having due diligence processes that their investment officers perform, but many of these processes have similar attributes. Assessing creditworthiness, for example, typically begins with reviewing the financial health of an investment opportunity before investing. DLM Finance can build the foundations for these activities into Trade Manager, enabling a best-in-class product that can easily be updated to fit a specific customer’s needs. Nijssen describes this as a “multi-tenant application… one application and one version which is used by all of our customers.”
TMS software, by design, must connect to other systems that house data to provide its basic functionality. Like many industries, banking is typically a laggard when adopting new technologies. Much of the information that Trade Manager must connect to and analyze is primitive. MT940 for example, a format used by the Society for Worldwide Interbank Financial Telecommunication (SWIFT) to send and receive bank account statements, does not contain delimiters as found in CSV files. Tijmen Verwoert, Senior Developer at DLM Finance, explains that “Mendix excels by interfacing and connecting with other systems,” providing an easy way to extract and parse data for analysis. Despite the lack of clear separation between data in the MT940 format, developers like Verwoert can use Mendix to leverage both primitive data sources and modern interfaces, such as OData to consume REST APIs. This flexibility in data analysis enables DLM Finance to work with a broader range of clients.
Happy Clients, Happy Life
Not only were DLM Finance customers among the first companies in the Netherlands to comply with the new EMIR regulation, but Nijssen’s team is also able to respond quickly to client requests, delivering updates as frequently as every month. Because their clients are using the same TMS software, every customer receives the latest updates. As Nijssen explains, “everybody wants the best in class system. But if our customers have to define functional specifications, it becomes a lot harder to define what they need.” The shared financial expertise amongst the DLM Finance team enables them to build solutions that provide value to their client, quickly pivoting or providing updates as new best practices or even regulations. Nijssen explains that Mendix’s “responsiveness is much quicker than if [DLM Finance] were to go with a traditional coding platform.”
In one example, Nijssen outlines that a client lost millions of euros without understanding how or why the loss occurred. He explains that a currency moved against the client unexpectedly, and the client could not have anticipated this loss because they did not have the risk management capabilities available to them. By building TMS software that provides an analysis of investments in emerging markets, DLM Finance is now providing its clients with capabilities that will help to prevent significant losses like these from occurring.
Enabling Finance Experts to Do What They Do Best
Previously, DLM Finance was dependent on the willingness of its software provider for developing solutions that help its clients invest in emerging markets. From markets not being deep enough to the challenges of defining best-in-class software, their FinTech provider fell short of developing the solution DLM Finance needed. As Nijssen explains, the DLM Finance operations team would need “at least double or three times the people” to do their jobs effectively. With Trade Manager, DLM Finance can accomplish more with a smaller headcount. Nijssen, Verwoert, and the rest of the team can deliver solutions that provide investment opportunities in markets otherwise ignored by many FinTech companies. Nijssen explains, “we don’t see ourselves as an IT company. We are basically finance-people that work in FinTech… so we speak finance.” With low-code, Nijssen is delivering the best in class solutions at speed, leveraging his experience across finance to build robust TMS software.